[rad-green] Los Angeles Times: California fires show it’s private enterprise, not government, that can ’t get things right

*https://www.latimes.com/business/story/2019-10-28/california-fires-private-enterprise
<https://www.latimes.com/business/story/2019-10-28/california-fires-private-enterprise>*
*Los Angeles Times          Oct 28, 2019*

California fires show it’s private enterprise, not government, that can’t
get things right*The judge overseeing PG&E’s probation after its criminal
conviction in connection with the 2010 gas line explosion that killed eight
in San Bruno criticized the company for spending on campaign contributions
and distributing $5 billion in shareholder dividends prior to filing for
bankruptcy.*

*By MICHAEL HILTZIK, **BUSINESS COLUMNIST *
[image: Shopkeepers Sodhi Singh, left, and Navneet Singh prepare to close
down their gas station and convenience store in Healdsburg in Sonoma County
after the lights went out ahead of an expected high-wind event in the area
of the Kincade fire.]
*Shopkeepers Sodhi Singh, left, and Navneet Singh prepare to close down
their gas station and convenience store in Healdsburg in Sonoma County
after the lights went out ahead of an expected high-wind event in the area
of the Kincade fire.(Luis Sinco / Los Angeles Times)*

Critics of public sector inefficiencies have long declared that “government
should be run like a business.”

A business such as, say, Pacific Gas & Electric?

The current wildfire crisis in California should serve as an object lesson
in the folly of expecting private enterprise to operate in the service of
the public interest. It’s common to hear ordinary taxpayers grousing about
the DMV as a proxy for all that’s burdensome and irritating about
bureaucracy.

*[We] reached new levels of reliability and won recognition from our
industry for our emergency response efforts.*

*ANTHONY F. EARLEY JR. IN 2015, WHEN HE WAS CHIEF EXECUTIVE OF PG&E*

But the electricity shutoffs across the state, aimed at reducing the chance
that a spark from utility equipment will start a fire, are the handiwork of
our private utilities, artifacts of their failure to spend more money on
their infrastructure rather than shareholder dividends.

Federal Judge William Alsup of San Francisco, who is overseeing PG&E’s
probation after its criminal conviction in connection with the 2010 gas
line explosion that killed eight in San Bruno, implicitly acknowledged as
much in an order last January. In his order, Alsup tasked the company to
“remove or trim all trees that could fall onto its power lines” as well as
“identify and fix all conductors that might swing together and arc ...
under high-wind conditions,” among other steps that the company had been
expected to take under existing law. Alsup observed that California fire
authorities blamed PG&E for 18 wildfires in 2017 and referred 12 of them
for possible criminal prosecution.

He wrote of the imperative to “protect the public from further wrongs” by
PG&E and “deter similar wrongs from other utilities.” Alsup further noted
“PG&E’s history of falsification of inspection reports.” PG&E argued that
the order was so broad it would interfere with its operations.

In July, Alsup further criticized the company for spending on campaign
contributions “even quite recently” and distributing $5 billion in
shareholder dividends prior to filing for bankruptcy. He demanded to know
why the company had made those expenditures instead of “replacing or
repairing [its] aging transmission lines ... and removing or trimming the
backlog of hazard trees.” PG&E replied that it engaged in the political
process “to ensure that the concerns of customers, shareholders and
employees are adequately represented before lawmakers and regulators,” and
paid dividends to keep its shares desirable enough to allow it to raise
money in the capital markets.

PG&E isn’t the only private company to be charged with breaching its duty
to public service, although as the nation’s largest private utility its
behavior stands out.

Nor is it the only private company to screw up. Within the universe of
California electric companies alone, there’s Southern California Edison,
whose ham-handed management of an $800-million refurbishment project at its
San Onofre nuclear plant resulted in the permanent shutdown of the plant
<https://www.latimes.com/business/hiltzik/la-fi-hiltzik-utilities-20180810-story.html>
as
much as 20 years ahead of its proper retirement.
[image: PCG_YahooFinanceChart.jpg]
*PG&E shares have fallen to $4 from nearly $18 over the last two years.
(Columns represent trading volume.) At that price, why shouldn’t California
buy the company?(Yahoo Finance)*

Then there’s Facebook, a Silicon Valley behemoth whose insensitivity to its
responsibilities to its users and society at large has become a byword.
Earlier this month, Sen. Elizabeth Warren (D-Mass.), a candidate for
president, labeled Facebook a “disinformation-for-profit machine.”
<https://twitter.com/ewarren/status/1183019880867680256>  Given Facebook’s
refusal to vet political ads for manifest untruths, not to mention its long
history of breaches of users’ privacy, who could argue her point?

Facebook plainly sees the path to ever greater profits as one in which it
tramples over the public interest; if its co-founder and chief executive,
Mark Zuckerberg, thinks he can get away with bowing to the public interest
by giving speeches without taking concrete action, he will do so.

These cases point to our confusion over the proper role of government and
private enterprise in our economy. Simply put, private enterprise
invariably pursues its self-interest. There’s nothing wrong with that,
within limits. The boundary line is where corporate self-interest conflicts
with the public interest, and one duty of government is to monitor that
line.

In the case of companies operating within natural monopolies, such as power
distribution or cable television, government has a further responsibility
to impose regulations to ensure that private enterprise doesn’t cross over
it. Facebook is a different matter: The issue Warren raised touches on
whether Facebook’s commercial footprint had grown so great that its impact
on the public interest was a matter for public concern. (She has called for
the company to be broken up.)

That’s why we have the Public Utilities Commissions and the Federal
Communications Commission, not that they always function ideally (far from
it).

The public sector has another important role in the economy. That’s to make
investments that are needed in the community but that don’t directly offer
an evident return to any given private company or investor.

To take one notable example: Hoover Dam. The dam was conceived to serve
several purposes — to offer flood control and an irrigation supply for
California’s Imperial Valley and to provide water and generate electricity
for growing markets in California, Colorado and Arizona, among other places.

But electric companies didn’t want to pay for flood control and irrigation,
and growers couldn’t afford to build a power-generating dam. So the federal
government had to step in to build the all-purpose dam that eventually rose
on the lower Colorado River — and that eventually produced billions of
dollars in profit for all those private enterprises.

The development of the internet followed much the same pattern. In the late
1960s, Robert W. Taylor of the Pentagon’s Advanced Research Projects Agency
<https://www.latimes.com/local/obituaries/la-fi-robert-taylor-obit-20170415-story.html>(now
the Defense Advanced Research Projects Agency, or DARPA) perceived the need
for a data transmission network that would be independent of mutually
incompatible technologies owned by IBM and other firms, which all tried to
squeeze profits out of their competing proprietary systems.

Meanwhile, the nation’s communications network was under the monopolistic
thumb of AT&T, which obstructed efforts to use its phone lines to transmit
data.

The solution was to build a government network, which evolved into the
internet. Once the network matured, it was turned over to private
companies, which by then could see quite a bit of potential profit in data
transmission, thank you very much.

That brings us back to the wildfires. PG&E, as recent events have made
clear, hasn’t sufficiently invested in its infrastructure for years,
possibly because the company has not perceived a corporate imperative to do
so.

That’s not to say the company hasn’t paid lip service to the public
interest. In 2015, its then-CEO, Anthony F. Earley Jr., boasted
<http://s1.q4cdn.com/880135780/files/doc_financials/2015/2015-Annual-Report-Final.pdf>
that
the company “took further steps to improve safety, reached new levels of
reliability, and won recognition from our industry for our emergency
response efforts. ... We strengthened the flexibility and resiliency of our
system. And we sharpened our focus on achieving these gains while
maintaining the affordability of our service.”

It’s proper to observe that at that moment, PG&E had gotten one huge
wake-up call. The PUC had slapped the company with a record $1.6-billion
penalty in connection with San Bruno. The money came out of its
shareholders’ hides, reducing its profit that year to $874 million from
more than $1.4 billion the previous year.

Yet it’s doubtful that anyone, from regulators to ratepayers, ever became
completely convinced that the company had changed its ways. The subsequent
fire seasons showed they were right to be skeptical.

It’s true that government authorities deserve plenty of blame for the
disaster, and the disastrous performance of PG&E. They were the regulators,
after all, and their record is one of indulgence toward a serial violator
of laws and rules.

That still leaves us with the quandary of how to chart a path forward. With
PG&E currently in bankruptcy, a battle for its assets (and soul) is being
waged by Wall Street hedge funds.

As we’ve written, the eventual victor in this battle may pledge to honor
the public interest, but that’s not the way to bet
<https://www.latimes.com/business/story/2019-10-17/hiltzik-hedge-funds-pge>,
for when management’s choice boils down to investment in infrastructure or
another few pennies in dividends for shareholders, the financial incentives
may tilt toward the latter.

As we reported in January
<https://www.latimes.com/business/hiltzik/la-fi-hiltzik-utilities-stocks-20190111-story.html>,
the price of PG&E stock had fallen so low that buying the company outright
was theoretically affordable for the state of California, which had an
overall budget of more than $200 billion. Company shares were trading then
at $17 and the whole company was worth less than $9 billion. With the
company now in bankruptcy, PG&E shares are now trading at about $4 and the
whole company could be had for just over $2 billion.

One argument against that move is that there’s no guarantee that state
management would be better than private management. That’s possible, but
PG&E’s successive managements haven’t left all that much room for lousier
performance. Moreover, state ownership would at least place the public
interest ahead of that of shareholders, since there wouldn’t be any
shareholders.

The fundamental lesson of the wildfires remains in place. A private
company’s responsibilities to the public interest will almost always take a
back seat to the profit motive, unless it perceives that its profits are
directly dependent on the public interest. But such direct connection is
rare. The time may have come to turn over PG&E to government ownership, and
see if its culture can be changed.

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